Forrest’s bold plan to save his empire

FORTESCUE Metals Group chief Andrew Forrest was hopeful of stitching up a suite of asset sales last night in a deal to save the iron ore empire he founded a decade ago from the hands of its bankers.

Speaking from New York yesterday, Mr Forrest said the media leak on Thursday afternoon, revealing Fortescue was in talks with its creditors regarding its loan covenants, was ”an attempt by some institutions to short-sell the company’s stock and misinform the market”.

”The company believes it has the support of companies, institutions and governments and stands in no fear of the future,” Mr Forrest said.

Fortescue went into a trading halt before the market opened yesterday.

As rumours swirled yesterday – including speculation of potential takeovers and restructurings – sources said that Mr Forrest had been trying to thrash out a sale and leaseback deal with the likes of Queensland rail giant QR National.

Speculation that Mr Forrest was in talks with Kerry Stokes’ company Westrac over a billion-dollar sale and leaseback deal were denied by a spokesman for Mr Stokes.

According to sources, the deal was to involve Fortescue selling its rolling stock and heavy machinery for cash. The cash would be deployed to pay down debt and would require the Fortescue banking syndicate to change its loan covenants.

Sources close to Fortescue maintained late yesterday that any deal would not involve either the sale of the rail line or any dilution of Mr Forrest’s 33 per cent stake.

However, Fortescue stakeholders, who preferred to remain anonymous, said it would be a miracle if Mr Forrest could manage to pull off a deal that did not involve at least a heavy dilution in his shareholding.

”At current iron ore prices, he is dead,” said one.

At the height of Fortescue’s value in 2008, Mr Forrest’s stake was worth $12 billion. With the stock in suspension yesterday it was valued at $3 billion. Trading had been suspended after it was revealed in the Australian Financial Review that Fortescue had been in talks with its bankers to secure a waiver to its debt covenants.

Iron ore sales at current prices – down 30 per cent in two months – are not sufficient to cover the interest on the group’s $8 billion-plus in borrowings and the company needs to draw down further on its facilities to complete the expansion of its mining operations, an endeavour that now appears line ball.

”Discussions with its banks have progressed significantly overnight and it is in the best interests of shareholders to halt trading in Fortescue’s securities,” company secretary Mark Thomas said in a statement filed to the Australian Securities Exchange on Thursday evening.

Things were fluid last night, however, with discussions still afoot. And late yesterday the Fortescue debt market indicated a potential deal remained in the offing.

Any sale and leaseback deal would require approval from Fortescue’s banking syndicate. Sources said Fortescue was looking to retain ownership of its train tracks while selling the trains, trucks and equipment.

Sources dismissed speculation of any imminent deal with Chinese group Baosteel, Fortescue’s biggest customer. ”Too premature,” said one, referring to rumours that Fortescue was shopping a stake of as much as 15 per cent to Baosteel. ”The Chinese are in no hurry.”

”There is classic ‘Art of War’ stuff going on. At the moment there is no reason for the [iron ore] price to go up.

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